The size of the UK’s health and education facilities management and catering market came in at a substantial £3.2bn last year, with healthcare making up the lion’s share.
This, by all accounts, is a market which provides opportunity for a broad range of stakeholders. However, political uncertainty, reputational issues surrounding outsourcing, and increased strain and pressure on the health service as a whole, have all contributed to a period of challenging discussion and dialogue in the sector. This was a hot topic at the recent Hospital Caterer’s Association annual conference held at Celtic Manor is South Wales.
Together the healthcare and education sectors represent just under 30% of the total facilities management market. With both offering stable, long-term prospects, they are especially attractive to service providers, despite the market’s 2% year on year contraction in 2017.
But with the hospital catering and FM dominated overwhelmingly by the big boys, those with the most to gain sit squarely at the SME end of the scale. Just 6% of FM/catering companies are worth more than £10m, yet the likes of Compass Group, G4S and ISS together enjoy a 94% share of the market. This is quite remarkable.
Encouraging smaller businesses in to facilities management
Many in the know will look to the dominance of the larger players and attribute this to the fact that the hospital food and facilities management industry currently doesn’t present a start-up friendly business model. New entrants are remarkably few. Around 80% of FM and catering companies are more than 10 years old and just 4% are less than six.
The main barriers to entry are the complex and potentially litigious agreements, onerous performance management regimes and the pursuit of increasingly unrealistic cost savings. As a result we have seen around 14 competent bidders reduce by over 60% in the last 5 years, some of those have gone out of business or just left the sector.
At the same time, we have seen contracts for FM and catering in hospitals move from input- to output-based specifications.
This means that service providers are no longer delivering a service according to predetermined resources and agreed timeframes. The focus now is on using service analysis, benchmarking and knowledge sharing to drive cost efficiency.
Hospital trusts are increasingly looking to outsource more than just the service provision; they want to offload the risk too. There’s no one size fits all attitude to the importance of services between trusts either. Some see FM and hospital food as non-core, while others see it central to patient care. It’s a mixed bag.
Meanwhile growing demand for contractors to provide innovation with greater reliance on data and technology is undoubtedly evolving the way healthcare is delivered. But tech innovation doesn’t come cheap for anyone, not least the sub-£10m firms pushing for growth.
It’s not all doom and gloom though. Putting aside the 2017 contraction, public sector outsourcing is forecast to be on a steady incline according to research by AMA. And not all of the new public sector opportunities are for TFM.
Service provision may be broken up, thus encouraging more collaboration and this could be between in-house and outsourced operators or multiple contractors working together.
And that’s the rub. Outsourcing can take many forms but in the NHS we are only seeing around 6% of the market’s capability. Political and economic uncertainty means there is no right or wrong answer. It is very much down to capability and competence at a particular site.
We need to think about how that might change so that as facilities managers & caterers we are getting operators who understand that food is a medicine and is at the heart of patient care.
Neller Davies was recently invited to discuss the future of the healthcare estates market as expert panel members at the Hospital Caterer’s Association annual conference 2018.